After a drawn-out competition and much fanfare, e-commerce retail giant Amazon announced and then dropped pans for a second quarters in New York’s Long Island City. We reported that local opposition killed the deal.

Now property owners in the area are feeling the pain, with a recent 13% price cut on real estate in the area, according to real estate investment advisor, Greg Kraut.

To get a better read on New York’s real estate market and how the news is affecting brands and rents in the area Grit Daily caught up with Kraut, the managing partner at K Property Group, for the details.

GD: To what extent is the commercial property market a barometer of economic health?

Greg Kraut: The commercial property market does reflect the economic conditions of an economy.

If the commercial property market is growing, then economic output will be increasing, and most firms should have been experiencing increased profitability. Increased profitability leads to strengthening consumer and business confidence which gives tenants the confidence to lease or buy more space and spend more on improving their properties which leads to more investment in the sector.

We believe the commercial real estate market is positioned to continue receiving help from a strong economy. Tenant demand is healthy, new office supply is controlled, occupancy rates are stable, and most property types are experiencing positive rent growth, even ten years into the economic expansion.

GD: How do new employer entrances — for example Amazon’s HQ2 announcement that came and went — impact prices?

GK: In the last six months we had an immediate run up in the value of property. The change came after a slump that in October saw 13 percent of the area’s listings slash their prices. Amazon’s move to Long Island City may have paved the way for other large companies to move into the neighborhood.

The HQ2 cancellation has sent developers scrambling as deals were cancelled. Besides prices, long term infrastructure spending on streets, sidewalks, open space, and the like as well as a 600-seat school and 3.5 acres of public, open space along the waterfront will not be made.

GD: Have commercial and residential prices diverged?

GK: Yes, the strong historical link between home prices and industrial land is diverging at its fastest rate in more than a decade as institutional investors continue to pay big prices for the growth in e-commerce and logistics space at the same time credit restricts the buyer pool for residential property.

In NYC, residential property has declined whereas commercial property has increased. The last 2 buildings that we purchased were 30 Howard and 446 Broadway. They both were being sold as residential but the market kept getting better for commercial office so we went that route. This was unheard for the last twenty years.

GD: Nationally, what are the weakest markets in commercial? Strongest? 

GK: The strongest markets are industrial, multifamily and office (in key gateway markets). The weakest market is Retail. We see strong investor interest in the multifamily sector, which is now the top selling of the major property sectors. 10 years ago the top sector was CBD office –now it’s apartments — except in some key gateway cities like NYC. We are now seeing the biggest gains in industrial parks and warehouses, similar to retail five years ago, so beware.